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“We have noticed that there has been a shift in the marketplace with more 30-year amortizations relative to five years ago,” Julie Dickson said after a speech to the annual conference of the Canadian Association of Accredited Mortgage Professionals. “We continue to monitor mortgage lending closely.”

That includes regularly consulting with banks and other federally regulated financial institutions, she said.

These longer terms loans are no longer available to higher-risk borrowers, defined as those who need to borrow more than 80 per cent of a property’s value.

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But they continue to be offered to low-risk borrowers, those with more than 20 per cent equity in their property.

The regulator is looking at whether lenders are applying the same standards for credit scores and loan-to-value ratios to 30-year mortgages as they apply to shorter mortgages, she said.

Dickson said it’s also up to borrowers to consider the potential risks.

“We expected banks to lend to people where they’re reasonably sure they’ll get paid back,” she said in her speech. “At the same time, borrowers need to understand what they’re getting themselves into.

“A 30-year mortgage may be great for some borrowers, but if that’s the only way you can get into the market, you might want to take a look at the degree of leverage you’re taking on.

“People need to be reminded that mortgages rates are very low right now.”

Longer amortization periods lower the borrower’s monthly payments by stretching them out over a longer time. It means borrowers can take on larger loans.

They became a concern after the financial crisis of 2008-9 and the U.S. housing crash as highly leveraged consumers, faced with a sudden interest rate increase, defaulted on their loans.

Federal Finance Minister Jim Flaherty moved to clamp down on the risk in Canada by tightening the rules for high-risk loans. That included capping the amortization period at 25 years on loans with a minimum 20 per cent down payment.

The measures helped cool Canada’s red hot housing market and put a damper on household borrowing, but house prices have continued to rise, especially in the Toronto and Vancouver markets.

While it’s unclear whether Canada’s housing market is a bubble set to burst or simply headed for a “soft landing,” Dickson said it’s her job to ensure lenders are prepared for any unpredictable shocks.

“We don’t make predictions about where the market is going,” she said. “Our role is prevention and making sure banks are prepared for the unexpected.”

Any predictions that point to declining delinquencies and improving credit scores as proof borrowers are at less risk are not particularly reliable, she warned, as they’re considered lagging indicators that can rapidly deteriorate if credit conditions worsen.

Also, she noted that “averages” don’t take into account the fact some borrowers are at higher risk than others.

The debt crisis in Europe and the fiscal situation in the U.S. continue to pose financial risks to the global economy, she said.

“Any foreign shock could have an impact on interest rates,” she said. “It’s a dynamic mortgage market. We’re still monitoring it closely. We need to be ready to act if we feel we need to act.”

OSFI reviewed the 30-year mortgage back in May and decided no changes were needed, Dickson said. However, she added, “this is a market that continues to bear very close watching.”

Dickson also disclosed the timing of OSFI’s next regulatory review. She said her office would be publishing proposed guidelines for the default mortgage insurance industry in March.

Called B21, the new guidelines are expected to ensure mortgage insurers closely scrutinize the high-risk loans they’re being asked to back.

A similar set of guidelines, called B20, requires lending institutions to pay closer attention to fundamental practices, such as adequately assessing a borrower’s ability to carry the payments.

The two largest mortgage insurers are Canada Mortgage and Housing Corp. and Genworth Canada.

She defined that as a sound appraisal process, a maximum loan-to-value ratio for home equity lines of credit, paying attention to loan-to-value ratios and adequately assessing a borrower’s ability to service their debt.

The U.S. housing crash in 2008-9 was partly due to unsound mortgage underwriting practices, she noted.

“Consumers must be considered here,” she added. “While banks may be able to withstand shocks many consumers cannot.”

OSFI’s guidelines do not affect non-federally regulated lenders, such as credit unions. However, she said, most mortgages are written by federally regulated lenders.

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